A momentous day for Ireland and the eurozone

Spelling out the full horror of it, Robert Peston describes a crisis even deeper than publicly admitted. The one glimmer of hope is that the rich States of the EU and other major investors now admit they are intimately implicated. Rather than presenting themselves as strict but magnanimous bailers out of little Ireland, they are gradually being forced to recognise their self-interest in a better system to protect ther own savers who invested in Ireland in the first place. And yet the final form of that recognition is uncertain. Will today represent only another step on the way to the unknown consequences of a managed default?

Unless something unexpected happens in the next 24 hours, the total amount of additional capital that will need to be injected into these banks will be a bit less than 35bn euros – including 8bn euros that was supposed to be injected into them at the end of February, but was postponed because of Ireland’s political turmoil.

Anyway, let’s assume that the total amount extra that these banks need is circa 30bn euros. That would take the total quantity of state investment in Ireland banks to a breathtaking 75bn euros (actually a tiny bit more than that).

That is an almost unbelievably large number. When I think about it, I have a small panic attack – because it represents 45% of Ireland’s GDP and 55% of its GNP.

On Thursday for the first time they’ll be forced to admit that they also face colossal losses on residential mortgages.

The Irish government probably chose the worst of all strategies for propping up the banks.

By guaranteeing all their liabilities in the autumn of 2008, they turned the bloated liabilities of the swollen banks into public sector debt.

It will be another momentous day for Ireland and for the Eurozone. But whether it will be a day that sets both on the road to financial recovery, or nudges them nearer catastrophe, cannot yet be assessed